President Biden today signed an executive order requiring a 100-day review of key aspects of the nation’s supply chain, providing a timely reminder for all business leaders about the importance of being prepared for any crisis situation.
Dr. Aleksandar Tomic, is the associate dean for strategy, innovation, and technology at Boston College’s Woods College of Advancing Studies. He said Biden’s executive order, “… highlights the need for back-up inventories that can be deployed in the time of crisis. This is not an easy issue for any business as maintaining such inventory and basically introducing slack into their supply chain is costly on a day-to-day basis.”
Excerpts From Executive Order
In the executive order, Biden said, “The United States needs resilient, diverse, and secure supply chains to ensure our economic prosperity and national security. Pandemics and other biological threats, cyber-attacks, climate shocks and extreme weather events, terrorist attacks, geopolitical and economic competition, and other conditions can reduce critical manufacturing capacity and the availability and integrity of critical goods, products, and services.
“Resilient American supply chains will revitalize and rebuild domestic manufacturing capacity, maintain America’s competitive edge in research and development, and create well-paying jobs. They will also support small businesses, promote prosperity, advance the fight against climate change, and encourage economic growth in communities of color and economically distressed areas.
“More resilient supply chains are secure and diverse—facilitating greater domestic production, a range of supply, built-in redundancies, adequate stockpiles, safe and secure digital networks, and a world-class American manufacturing base and workforce.
“Moreover, close cooperation on resilient supply chains with allies and partners who share our values will foster collective economic and national security and strengthen the capacity to respond to international disasters and emergencies.”
Tomic observed that, “… no one is questioning the need to maintain stockpiles, but if we have another prolonged period of a relative calm, there will be political pressure regarding the ongoing cost of maintaining capacity, whether stockpiles of finished product or production capacity.
“However, these pressures are much easier for [the] government to deal with than the price pressure is for a business,” he concluded.
Recent Strains On Supply Chains
Different Kinds of Emergencies
Tomic said, “Businesses already have models to deal with recurring emergencies, such as hurricanes (for example see Home Depot’s efforts) and can be very efficient in responding. However, unusually strong and unusually protracted emergencies, such as [the] early days of Covid-19 and the recent Texas storms are different.”
He noted that when the supply chain “… is squeezed at all points such as was the case with Covid-19 and there is a limit on production capacity compounded with demand surge, it is difficult for a business to ramp up quickly, especially when it is not certain that demand will persist.
“Maintaining sufficient inventory for such occurrences is cost-prohibitive as appreciation for being able to supply the customers quickly gives way to price-consciousness once the emergency subsides,” he said.
Frank Kenney is a former Gartner analyst and an expert in supply chain processes. “I would expect that the executive order would stress that business leaders need to focus on fundamentals, such as improving B2B integration technology (external and internal, leverage the cloud) to enable full visibility into the entire supply chain, and creating the agility for companies to turn on a dime.
“Faulty integrations affect the bottom line by [impacting] the ability to onboard new customers and suppliers as well as pivot if there are restrictions on trade and travel,” he observed.
“Just released survey data shows 88% of respondents admit that their company lost orders in 2020 specifically due to integration issues, with 25% admitting that they don’t even know how many orders they’re losing.
“This demonstrates how a lack of supply chain visibility and modern integration capabilities, a problem that plagues 50% of supply chain organizations, can negatively impact supply chain continuity. Business executives should look into deploying an automated integration platform that can make the onboarding process nearly instantaneous, as opposed to taking weeks, or even months,” Kenney said.
Advice For Business Leaders
Tomic said his advice for businesses “… would be to prepare for ‘common’ emergencies and for government to take more steps to prepare for ‘extraordinary’ ones. Unfortunately, one lesson is also for businesses to prepare for infrastructure failures of the kind that we witnessed in Texas, as they may be more common, given the state of infrastructure in the U.S.”
Don’t Expect To Be Warned
“President Biden’s executive order is really reminding companies that emergencies usually do not arrive with fair warning, and that they therefore need to make plans today for the emergencies of tomorrow,” observed Peter Schwartz, a principal at Jibe Consultants.
“From my experience, crisis communication plans are not just crucial for a company’s survival but also very often overlooked. But a crisis communication plan is a necessity for every company, and hopefully the President’s executive order will underscore this fact,” he said.
Schwartz recommended that, “a crisis communication plan must be in place ahead of time to ensure that a company can fulfill its mission even in the face of unforeseen and severe challenges.”
Remember Lessons Learned
Tony Nuzio is 45-year veteran of supply chains and logistics and publisher and editor-in-chief of Logistics Strategies. He said that, “If business leaders have learned anything from this crisis, it’s that the global supply chain can change on a dime and relying on foreign businesses to supply the components a company needs to manufacture its product is dicey.
“I suspect that business leaders are going to look at how they can find the goods they need in the U.S. to combat the challenges faced when the global supply chain can’t perform. “
“An air tight supply chain program with a, b, and c plans is critical. You can’t just rely on one avenue,” Nuzio said. “You need to have the plans ready to go to plan b and c and so on. That’s going to take a lot of leg work now to be sure that the chain doesn’t collapse during a crisis. They are going to need to get with consultants, identify more local partners and look at how they can keep extra stock of critical components available.”
—Updated at 6:51 pm with excerpts from the executive order